Maltese Parliament approves Three Blockchain and Cryptocurrency Bills

Malta has become the first European Union Member State to regulate blockchain-based businesses and their service providers, cryptocurrencies and initial coin offerings. Indeed, on the 26^th June 2018, Maltese Parliament has unanimously approved three legislative bills which continue to strengthen Malta’s profile as the Blockchain Island.

The three legislative bills that were approved by Maltese Parliament are:

1. Malta Digital Innovation Authority Act (the ‘MDIA Act’)

This Act establishes an authority, the Malta Digital Innovation Authority (MDIA), which has the purpose of supporting the development and implementation of the guiding principles described in the Act and exercising regulatory functions regarding innovative technology, arrangements and related services, amongst others.

By virtue of this Act the MDIA is empowered to grant or refuse innovative technology authorisation. The said authorisation may be issued on the voluntary application of:

• innovative technology service providers; or,
• the technical administrators or other persons involved in any innovative technology arrangements.

Another salient feature of the Act is the establishment of the Joint Regulatory Efficiency Board. This Board aims to nurture a spirit of effective cooperation between the MDIA and other national competent authorities in the area of innovative technology.

The MDIA, which is currently led by Mr Stephen McCarthy as its first Chief Executive Officer, is obliged to carry out its functions in an impartial, transparent and timely manner.

2. Innovative Technology Arrangements and Services Act (the ‘ITAS Act’)

The ITAS Act provides for the regulation of innovative technology arrangements and services and the exercise by the MDIA of regulatory functions with regard thereto.

This Act defines innovative technology arrangements as:

• software and architectures which are used in designing and delivering Distributed Ledger Technology (DLT),
• smart contracts and related applications, including decentralized autonomous organisations, as well as other similar arrangements; and,
• any other innovative technology arrangement which may be designated by the Minister, on the recommendation of the Authority, by notice from time to time.

By reading this wide definition of the term innovative technology arrangements, one may notice that Maltese Parliament enacted a future proof legislation because it envisages the possibility of adding other innovative technology arrangements as the technology develops.

The ITAS Act also enables the MDIA to register any innovative technology service provider when it is satisfied that the innovative technology service provider:

• is fit and proper for the provision of the services it declares that it is providing or intends to provide;
• has the qualifications and, or experience which the MDIA requires for registration as a provider of services in the particular class applied for; and,
• has sufficient technical resources or third party support and is in a position to comply with and observe any applicable innovative technology authorisation rules and regulations, any guidelines issued by the MDIA as well as any conditions established by the same Authority in the particular case.

3. Virtual Financial Assets Act (the ‘VFA’ Act)

The VFA Act aims to regulate Initial Virtual Financial Asset Offerings (or ‘initial coin offerings’ or ‘ICOs’) and Virtual Financial Assets (VFA). In regard to ICOs, the Act provides that prior to offering a virtual financial asset to the public in or from Malta or applying for a virtual financial asset’s admission to trading on a DLT exchange, an issuer must draw up a whitepaper. The Act then goes on to describe which information must be disclosed in the whitepaper, for example, details of the issuer and information about the offer, amongst others.

Further, this Act introduces licensing requirements which must be satisfied by issuers of ICOs or those who intend to provide services ancillary to an ICO, if the issue or the service in question is provided in or from Malta. It also prescribes that an issuer must appoint a VFA agent who must be registered with the Malta Financial Services Authority (MFSA) and who carries a number of responsibilities towards the MFSA.

By virtue of this Act the MFSA is empowered to introduce and implement a Financial Instrument Test. This Test is made applicable to issuers, VFA agents and licence holders for the purpose of determining whether a DLT asset qualifies as electronic money, a financial instrument, virtual financial asset or virtual token.

In conclusion, the comprehensive framework which Malta has implemented puts this European Union Member State at the forefront of the Blockchain and DLT revolution. This ultimately provides market participants with the much needed optimal space where they can set up their business structure.